Defense industry braces for U.S. halt in Egypt aid

The defense industry has remained tight-lipped about how Washington’s suspension of military assistance to Egypt might affect its production lines.

Three main players gave terse answers when asked about the Obama administration’s decision to “hold” deliveries of big-ticket weapons to Cairo in a bid to punish Egypt for last summer’s political crackdown — without breaking off the relationship altogether.

Text Size

-

+

reset

Tank-builder General Dynamics, for example, has spent years pushing Congress to keep up tank orders for its plant in Lima, Ohio — even though the U.S. Army says it has more tanks than it wants. Army officials have said that export orders, including for Egypt, are enough to keep the line running, but GD and its allies in Congress don’t agree.

“We are under contract to … to produce tank kits for the Egyptian tank co-production program,” Army spokeswoman Ashley Givens said, referring further questions to the government.

GD is contracted by a foreign military sale for work on the Egyptian tank co-production program, which funds the production of Abrams tank kits. GD has provided parts for the kits since 1992 and ships them to a production facility near Cairo, where the tanks are manufactured for the Egyptian land forces, according to the company.

A 2011 award upped the number of Egyptian co-production-built tanks to a total of 1,130, and deliveries of the most recent batch of 125 tanks began in July 2013 and had been planned to continue until January 2016.

“This could have a devastating impact on the General Dynamics tank plant because it is right on the edge in terms of being able to keep production lines open,” said Loren Thompson, a defense consultant and chief operating officer of the Lexington Institute.

Boeing’s Apache helicopter plant in Mesa, Ariz., and Lockheed Martin’s F-16 production lines are in less danger of closing because of a halt in Egypt aid, he added.

“The potential impact on the tank plant from any delay in the aid to Egypt is much greater,” Thompson said. “The Army stopped ordering tanks a long time ago.”

Lockheed Martin has said its Fort Worth, Texas, F-16 production line would close in 2017 without additional orders. The U.S. hold on Egypt aid means Lockheed will stop work on six aircraft now in production, but a spokesman did not say what that would mean for the end of the line.

“We are under contract for 20 F-16s for Egypt,” spokesman Mark Johnson said. “Fourteen of the 20 have been delivered … through June 30, 2013, including seven this year. Additional questions should be answered by the United States government or the State Department.”

But even if Lockheed won’t say it, the cessation of deliveries of fighter jets to Egypt stings.

“Probably the most affected program is the F-16,” said Richard Aboulafia, an aerospace industry analyst at the Teal Group. “The F-16 line is getting extremely thin, and customers exactly like Egypt … are exactly what’s keeping it going.”

As for Boeing, which builds the Apache attack helicopters and Harpoon missiles the U.S. is also holding up, spokeswoman Meghan McCormick had no comment.

Defense contractors will do their best to not let the Egypt issue affect their bottom lines. But as with continuing decreases in Pentagon spending, the longer this policy stays in effect, the worse its effects will be.

The silver lining for industry is that the halt on aid to Egypt isn’t expected to last forever.

“This is not meant to be permanent; it’s meant to be the opposite,” an administration official explained during a background briefing. “It’s meant to be continuously reviewed. This is already the result of a review from over the summer. It’s not presented in terms of a definitive end to any programs. Certain things are being held until we see progress on things we’ve talked about: the inclusive, nonviolent sustainable democracy that I identified as one of our core interests in Egypt.”

And if the U.S.-Egyptian relationship is patched up quickly enough, the impacts could be manageable.

“It would take a while for the bottom line impact to be felt at the companies,” Thompson said.